Corporate governance is at the heart of the successful running of an organisation. It not only improves the overall performance, but also promotes trust among the shareholders and other stakeholders.
It is important that companies/organisations strive to follow good corporate governance practices. To assist, we set out below what we consider to be 8 key components:
1. Governance Frameworks
Governance frameworks can often be overlooked, however, they are the bedrock of how a company/organisation is governed and should be designed so as to ensure:
- effective boards,
- transparency around roles and responsibilities,
- accountability to, and engagement with, stakeholders, and
- driving sustainable business practices.
2. Governance Documentation
It is imperative that governance documentation is accurate and kept up to date. These documents establish the rules by which the business is governed, set out the rights and obligations of the shareholders/owners, and provide evidence for regulators/stakeholders of the governance processes/procedures in place.
3. Policies in line with law and applicable regulations
Policies and guidelines are important because they address pertinent issues, such as rules and principles for day-to-day operations. They ensure compliance with laws and regulations, reflect the culture of the organisation, give guidance for decision-making, risk appetite and streamline internal processes. These policies and guidelines should be current and in line with legislation/regulations as well as with the goals and strategy of the organisation. Additionally, these should be made easily available to ensure that everyone understands the way things should be done and how they are expected to behave.
4. Documenting processes and procedures
It is important that governance processes/procedures are adequately documented. Often a company/organisation has good corporate governance practices, however, have gaps in terms of documenting the actual processes/procedures in place.
5. Effective board reporting
Boards perform best when they receive good quality reports that contain sufficient information for them to make well-informed decisions and to develop business strategies for short and long-term growth and overall sustainability of the organisation.
In our experience, the challenges for management in preparing fit for purpose reports for the board include the following:
- time-consuming and inefficient processes,
- inconsistent styles, and
- difficulty in ascertaining the purpose and the output required from the board.
6. Agenda and minutes
It is imperative that the board deals with the most pressing/important strategic matters at meetings, therefore, we find that by grouping items together under headings and by putting routine items together for simultaneous approval by the board will ensure that agenda time can be best utilised during the meeting.
Given that board minutes are the definitive record of a company’s highest decision-making body, we consider it to be crucial that the quality of those minutes is of the highest standard and that they are clear, concise and free from ambiguity.
At a minimum, minutes should include:
- the key points of discussion,
- decisions made and, where appropriate, the reasons for them, and
- agreed actions, including a record of any delegated authority to act on behalf of the company/organisation.
7. Director training and board evaluations
Directors need to ensure they keep up to date with regulations and legislation, which can prove challenging. Additionally, increased responsibility and expanding regulatory demands means higher expectations for board performance.
We set out below common issues identified from board evaluations:
- board not spending enough time on strategy and the longer-term plans of the company/organisation;
- board not having a strong mix of skills, knowledge, experience and diversity;
- information not being supplied to the board in a timely manner and/or not of an adequate standard;
- board members not having sufficient time to commit to the company/ organisation to discharge their responsibilities effectively;
- directors not obtaining any formal induction training and/or ongoing training;
- corporate governance documentation either not being in place and/or not accurately reflecting the actual processes.
8. Subsidiary governance policies
Subsidiaries are a common feature of today's business structures, as corporations operate across multiple jurisdictions and business areas. To ensure that corporate governance principles are cascaded, consistently and effectively down to its subsidiaries and that subsidiary boards are aware of their responsibilities, it is important that such organisations:
- establish a subsidiary governance framework/policy;
- set out rules in relation to the oversight of the subsidiaries which respect the sanctity of subsidiaries and their decision making; and
- provide guidance to the subsidiary boards on their roles and responsibilities, and reporting requirements to the parent company.
If you have any queries in relation to the above, please do not hesitate to reach out to your usual PwC contacts, or a member of the Entity Governance & Compliance team.
